G.R. Nos. 155217 & 156393; July 30, 2003
Gateway Electronics Corporation, petitioner, vs. Land Bank of the Philippines, respondent.

FACTS

Petitioner Gateway Electronics Corporation obtained a P600 million loan from respondent Land Bank of the Philippines, secured by a mortgage on its properties. To secure additional funding, Landbank offered investment banking services to syndicate the loan. An Information Memorandum was disseminated, and a Memorandum of Understanding (MOU) dated October 10, 1996, was executed by Gateway, Landbank, and four other creditor banks. The MOU stipulated that the parties would enter into a Mortgage Trust Indenture (MTI) to secure the syndicated loans, with the mortgaged properties held in trust for the benefit of all creditor banks. Negotiations for the MTI later stalled over collateral valuation.
When Gateway’s loan with one participating bank became due due to the lack of a finalized MTI, Gateway filed a complaint for specific performance and damages. The Regional Trial Court granted a writ of preliminary mandatory injunction, ordering Landbank to accede to the terms of the draft MTI or a proposed Joint Real Estate Mortgage (JREM) to share its collateral. The Court of Appeals reversed this, ruling no clear legal right existed to compel Landbank, as the MTI/JREM schemes were never executed.

ISSUE

Whether the Court of Appeals erred in annulling the writ of preliminary mandatory injunction, specifically in ruling that Landbank could not be compelled to share its collateral with the other creditor banks.

RULING

The Supreme Court granted the petition and set aside the Court of Appeals decision. The legal logic centered on contract law and the binding nature of the MOU. The Court ruled that the MOU dated October 10, 1996, constituted a binding contract among the signatories. Its essential terms were definite: the parties agreed to enter into an MTI where Gateway would constitute a mortgage in favor of a trustee for the benefit of all creditor banks, using the specified properties as security. Landbank’s subsequent letters confirming its willingness to share the collateral it held were evidence of this agreement. The failure to finalize the MTI due to valuation disagreements did not negate the existence of the prior binding agreement to share the security. Therefore, Landbank had a contractual obligation under the MOU to share the mortgaged properties with the other banks as collateral for the syndicated loan. The trial court’s order for Landbank to implement this agreement was thus correct in substance, though modified by the Supreme Court to direct compliance with the MOU’s terms rather than a specific draft MTI or JREM. The separate contempt petition was denied for lack of merit.